“Credit card debt is easy to get into and hard to get out of,” said Ted Rossman, a senior analyst at CreditCards.com. “High inflation and rising interest rates are making it even harder to break free.”
The debt burden is disproportionately borne by lower-income Americans: The report shows that 59% of individuals who earn less than $50,000 a year carry a credit card balance from month to month. That compares to 49% of those who earn between $50,000 and $80,000 and 46% for those earning between $80,000 and $1,000 a year.
The numbers come against the backdrop of stubbornly high inflation that has shown little sign of cooling off: New data released last week by the Labor Department showed the consumer price index unexpectedly climbed 0.1% in August, dashing hopes for an inflation slowdown. On an annual basis, inflation soared 8.3%, hovering near the fastest pace since 1981.
Americans owed a stunning $887 billion in credit card debt as of June 2022, according to recent data from the Federal Reserve Bank of New York. That was an increase of about 5.5% from the first quarter of the year, and a 13% increase from the year-ago period.
“Americans are borrowing more, but a big part of the increased borrowing is attributable to higher prices,” researchers for the New York Fed said in a news release.
Still, despite the heavier use of credit cards and debt, the New York Fed noted that delinquency rates remain relatively low. The total outstanding credit card debt rose to $890 billion in the second quarter of the year, a $100 billion increase from the same month one year ago.
However, the CreditCards.com report showed that many Americans are at risk of being unable to pay off their cards should they lose their jobs.
About 45% of all cardholders, and 53% of cardholders carrying debt, said that losing their job would have a “major impact” on their ability to make at least minimum credit card payments over the next year.
With the Federal Reserve raising interest rates at the fastest pace in decades – policymakers already approved four consecutive hikes, including two jumbo-sized ones – there is a growing fear on Wall Street of an impending recession. Most economists expect unemployment to rise in conjunction with the benchmark interest rate.
Hiking interest rates tends to create higher rates on consumer and business loans, which slows the economy by forcing employers to cut back on spending.
Mortgage rates have nearly doubled from one year ago to more than 6%, while some credit card issuers have ratcheted up their rates to 20%